MEPs ponder how to fight tax havens

A week after the Paradise Papers brought new revelations about tax dodging by companies and individuals across the globe, including in the EU, the European Parliament is reflecting on how to step up the fight against these practices.

The Parliament committee that investigates the Panama Papers, a previous raft of revelations by the International Consortium of Investigative Journalists (ICIJ) in Washington, will hold its last meeting on 28 November, and will use this opportunity to organise a hearing on the Paradise Papers.

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EU tax commissioner Moscovici cannot succeed without "sincere cooperation" from member states (Photo: European Commission)

The Paradise Papers "don't add much" to the knowledge on tax evasion, tax avoidance, and money laundering, Petr Jezek, one of the co-rapporteurs of the so-called 'Pana committee' told EUobserver.

Jezek, from the liberal Alde group, noted that while "the mechanism is always the same," the papers "show the magnitude of the problem."

"The Paradise Papers provide a new political momentum," said Alain Lamassoure, from the centre-right EPP group, who chaired the Parliament's inquiry on tax rulings in 2015-2016.

"If we want to maintain pressure on governments to act, we need a scandal every year," he said.

In a debate at the European Parliament on Tuesday (14 November), EU finance and tax commissioner Pierre Moscovici tried to seize the momentum.

He said that he was "deeply outraged" by the latest revelations and called on EU countries to act.

He asked them to come up with a blacklist of tax havens at the next meeting of finance ministers on 5 December.

He said that he wanted a "credible and ambitious" list, with sanctions attached, but he did not specify whether he wanted the list to include EU countries.

'Vampires'

Moscovici called on member states to adopt "within six months" a Commission proposal for more transparency on activities of intermediaries - the consulting firms, banks or lawyers who help their client to avoid taxes.

He also asked them to agree on the fifth anti-laundering directive, which would require more information on the beneficial owners of companies - a measure to fight opaque trusts that allow tax evasion.

He added that country-by-country reporting - a mechanism under which companies report on their profits in every tax jurisdiction - should become public instead of being communicated only to tax authorities.

"Transparency is the first weapon in our armoury," Moscovici said, adding that tax evaders were "like vampires".

"They don't seem to fear anything except light, so it is up to us to generate that light," he said.

But in the Parliament, few seem to believe that members states will agree so quickly despite public pressure.

"The biggest obstacle is reluctant governments within our own EU family," noted Jeppe Kofod, the second co-rapporteur on the Panama papers. "They are very hypocritical."

Kofod, from the centre-left S&D group, said that Moscovici and the Commission cannot succeed without "sincere cooperation" from member states, but that many of them were blocking progress "behind closed doors".

On Tuesday, for instance, discussions between MEPs and the Council over the anti-laundering directive led nowhere, because member states did not give Estonia, which holds the Council's rotating presidency, a mandate to negotiate on the issue of transparency of trusts.

'Cynical member states'

"Even after the Paradise Papers, the Council hasn't learned anything," said Ana Gomes, an S&D member of the Parliament's delegation in the talks.

"Some member states are cynical and are safeguarding these practices [of tax dodging]," added Jezek, who is also a member of the delegation.

The countries that are regularly finger-pointed for blocking progress towards more regulation and more transparency are Malta, Luxembourg, the Netherlands, Ireland, and Cyprus.

"Some member states seem to see a business model in stealing other countries' taxes," said Peter Simon, the S&D coordinator on the Pana committee.

The centre-left group said it would "name and shame" companies, intermediaries, and countries, including EU countries, that were involved in tax dodging.

"If we don't include EU member states on the black list of tax havens, it will mean that we don't want to clean the house," argued Pervenche Beres, a former chair of the Parliament's economic and monetary affairs committee.

But neither the member states nor the Commission plan to put EU countries on the list.

Reducing loopholes

"The ultimate aim is to list countries that will be subject to sanctions - like impossibility to get access to the single market," Jezek argued. "You can hardly deprive Luxembourg or Malta of their presence in the internal market."

The liberal MEP added however that "some scrutiny for member states" should exist, even if the unanimity rule on tax issues makes it difficult to put in place.

Under sustained political pressure, member states could take a step further, on a plan to harmonise tax policies in the EU.

After the LuxLeaks revelations in 2014, which exposed tax rulings in Luxembourg, and later in Ireland and the Netherlands, EU states introduced a mandatory exchange of information between themselves in order to prevent tailor-made deals for companies.

Another measure that could reduce loopholes that companies use to dodge taxes is the common consolidated corporate tax base (CCCTB), a common rule to calculate companies' taxable income.

"It will be the only way to put an end to the various tricks that have allowed some European countries to steal their neighbours' tax revenues," said Lamassoure, who is preparing a report on the issue with S&D's Paul Tang.

Discussions in the Council about the CCCTB have been blocked by slow progress on another scheme, the common corporate tax base (CCTB), to harmonise rules for taxing corporate profits in the EU.

But Lamassoure said he believed that member states could agree on the measure.

He said that there was "a very solid front of big countries", including France, Germany, Italy and Spain, that do not want to see a return to tax rulings-like policies.

Reputational damage

Lamassoure also noted that the Netherlands and Ireland, after having been exposed by press investigations, could be willing to accept common rules, provided that tax rates remained a national prerogative.

"Reputational damage is much bigger now" than before LuxLeaks, Panama Papers and Paradise Papers alerted politicians and public opinion, Kofod also noted.

Another possibility to oblige member states to move forward would be to change the legal basis for the discussion, from rules on tax policies to competition. That would allow decisions to be taken by a majority vote, rather than through unanimity.

"This what we have to do," said Green MEP Eva Joly, who previously was a judge specialising in corruption cases.

She said that European Commission president Jean-Claude Juncker promised to do so when he was examined by the Pana committee. But MEPs in other groups warned that the legal arguments for such a move were not solid enough and that some countries could take the case to the EU Court of Justice.

Jezek also pointed out that many member states would be reluctant to abandon the unanimity rule out of fear of being dragged into discussion on their own tax rates.

A marathon, not a 100-metre race

While member states will continue to talk about what could be done, MEPs will vote on the Pana committee report in December, hoping that recommendations will be followed.

Left-wing groups argue that the Parliament should set up a new special inquiry on the Paradise Papers, in order to summon companies and individuals to get more details about tax-dodging activities, but right-wing MEPs say that it is not necessary or that the Pana committee could be simply extended if needed.

For the longer term, MEPs are pondering whether to create a permanent committee on tax issues, or to establish a sub-committee within the economic and monetary affairs committee.

As experts reckon that about 80 percent of tax dodging activities still have to be disclosed, MEPs want to "keep the finger on the wound and maintain political pressure," MEP Simon said.

"We can find the fight but not in the short term", he warned. "If you see this as a 100-metre race, you should be desperate and give up all hope. You have to see it as a marathon, and we are only at kilometre five, six, or seven," he said.

The EU's finance commissioner Pierre Moscovici told reporters that he wants a credible EU blacklist of tax havens following the latest media tax avoidance revelations of the wealthy elite in the Paradise Papers.

Malta's finance minister Edward Scicluna told reporters that the Maltese-based entities named in the latest tax avoidance leaks are all listed on a public register. "There was no secrecy whatsoever," he said.

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